Understand the Consequences of Failure in Filing Mandatory Compliance for a Company
Whenever you start a business, register your business first. A company doesn’t need to start doing transactions in its initial phase itself. Hence, it becomes important for the companies to show that there is no transaction to the government, and how can they do this? It is only by filing reports. So, whether you have zero or minimal transactions in the business, file your ITR (income tax return) and annual compliance. Fundamentally, this is just mandatory compliance for a company in India.
Annual compliance of a company has three parts:
- Company Audit
- Income Tax Return filing
- Annual filing
As per section 139 of Companies Act 2013, every company needs to keep its accounts updated seeking help from CA (Chartered Accountant). Getting books updated is mandatory for all companies irrespective of profits or losses incurred. The accounting period is of 12 months for every company and closes on 31st March of the next calendar. But the companies registered between January and March closes on 31st March of next year.
The company account has to show the following transactions:
- Director and Employee’s salary
- Office rent
- Preliminary expenses of the newly registered companies
This table will give you a fair idea about the closing financial year, irrespective of when you register a company:
|Month of Incorporation||First Financial Year Closure|
|January – March, 2019||31st March, 2020|
|April – December, 2019||31st March, 2020|
|January – March, 2020||31st March, 2021|
Irrespective of its turnover be profit or loss, company audit is mandatory. Appointment of the auditor is also must. Once financial statements are made, the company is ready to file the ITR.
Income Tax Return Filing
Every company irrespective of profit or loss in their transaction needs to file the Income Tax Return as mandated in section 131(a). It is applicable for every company, be it private, public, or foreign located. The ITR filing due date for the FY(financial year)2019-20 is 30th September 2020.
Failing to file ITR on due time may lead to paying a penalty of INR10,000 if filed after 31st December. But there is a relief for the small businesses with total income below INR5,00,000, the penalty for them is INR5,000. This penalty is mentioned under section 234F.
Filing ITR on time has the following benefits:
- Carry forward your losses.
- Easy loan approval.
- Claim tax refund.
- Quick visa processing
There are an audit and general meeting for the companies for annual compliance. There is some mandatory compliance for a company which includes filing of financial statements (form AOC-4), filing the annual return (form AGT-7), auditor appointment (form ADT-1).
The following table gives the date its Annual General Meeting, auditing and form filing:
|Compliance Details||Due date of compliance||Due date for FY 2019-20|
|Annual General Meeting||Within 6 months of Financial Year End* |
(Gap between two AGM should not exceed 15 months)
|30th September, 2020 |
(or within 15 months of previous AGM)
|Auditor Appointment or reappointment if any||Within 15 days of AGM held||Before 14th October, 2020|
|AOC-4(filing financial statements)||Within 30 days from the conclusion of the AGM||29th October, 2020|
|MGT-7(filing annual return)||Within 60 days from the conclusion of the AGM||28th november, 2020|
* The AGM is conducted within nine months of the financial year for its financial year, i.e. 31st December of 2018 for FY 2017-18
Consequences of Non-filing Annual Compliance
Apart from the penalty imposed on the company, there are more consequences that a taxpayer may face. These are the following:
- Unable to set off losses: If the annual compliances are not filed on time, then one cannot set off these losses against future gains, but if the losses are under house property, carrying forward of losses is approved.
- Additional Government Fee: Additional government fee of Rs100/day is charged if the company fails to file the annual compliance on time.
- Discontinuation of the company: On continuous non-filing of the annual compliance, can lead to the director’s disqualification and strike off the company’s name from the Registrar of companies. Recently, MCA have disqualified more than 1 lac directors and registered companies
- Penalty: Failure to file the annual return of a company, the penalty charged is INR50,000 and may also exceed to INR5,00,000.
- Punishment: The director can also be punished for imprisonment, up to 6 months along with fine or both.
Rules set by the MCA (Ministry of Corporate Affairs), states the filing of annual compliances as the mandatory compliance of a company. Following the mandates are fruitful for the company as they can save taxes and carry forward their loses. Filing annual compliances on time can be assistance for business registration further. Instead of paying the penalty, it is better to file the annual compliance on time.
3E Accounting India can help to register your business and also to file annual compliance of companies. We have a team of accounting experts who under the supervision of CA’s conduct audits, files ITR and ensures that the company doesn’t attract any fines. Get in touch with us, and we will be more than happy to assist with business registration.